Asian investment volumes into Europe to hit €41.2 bn by end of 2017 - more than double 2016 volumes

17 October 2017

Asian investment into Europe reached €23.2 billion by the end of Q3 2017, a 57% increase year-on-year, and with Q4 volumes on course to reach approximately €18 billion, international real estate advisor Savills forecasts that total annual volumes will reach a record €41.2 billion.

This is mainly due to Blackstone’s sale of the Logicor logistics portfolio, comprising 630 distribution centres across 17 European markets, to Chinese Investment Corporation (CIC) for €12.12 billion in June 2017, says Savills, but across Asia investor appetite for European real estate has increased as private investors and property companies have joined sovereign wealth funds in hunting for income-producing assets. Whereas a decade ago, Chinese investment was dominant, Asian capital is now more evenly split between sources in Singapore, Hong Kong, Korea and China.

According to Savills, the UK has been the destination of 53% of the Asian capital that has flowed into Europe over the past 12 months, followed by Germany which has accounted for 12% and CEE countries at 11%, however this is a far more diverse picture than in 2007, says Savills, when the UK accounted for 87% of Asian investment into Europe. Supporting this trend of more money into the continent In the past 12 months volumes have been particularly high in The Czech Republic, says Savills, due to the acquisition by Singapore's sovereign wealth fund GIC of P3 Logistic Parks for €375 million in Q4 2016 and CEFC China Energy Company’s purchase of the Florentinium office building in Prague for €281 million, with growing interest also recorded in Poland, Romania and Slovakia.

European offices remain the asset class of choice for Asian investors, accounting for 52% of purchases, says Savills, as business expansion has led to office vacancies falling in all of Europe’s capital city markets and strong rental growth; Savills expects prime CBD rents to have increased 7.1% year-on-year by the end of 2017. However, although European yields remain comparatively attractive to Asian investors, they are increasingly diversifying into other sectors such as logistics, which accounted for 18% of Asian purchases in the past 12 months, and increasingly assets with strong income streams, such as senior housing.

Marcus Lemli, CEO Savills Germany and head of Savills European investment, says: “Globally, the growing amount of capital allocated to real estate in the face of rarefying prime assets is pushing investors from all the world to look beyond their borders, with Asian buyers largely finding a home in Europe. The hunt for yield is leading to diversification both in geographies and sectors, notably towards income-stream asset type in niche markets fuelled by demographic global trends, to balance risk and optimise returns.”

Lydia Brissy, director in Savills European research adds: “Although there has been much talk about a possible slowdown in Chinese investment following restrictions on outbound investment, capital outflows from Hong Kong have been largely unaffected, while mainland investment has also continued, albeit the nature of Chinese investment is likely to shift from trophy assets towards long-term corporate strategic investments such as logistics, student housing and healthcare facilities. In addition, Korean and Singaporean investors, which hold a significant weight of capital, are still looking to Europe for investable grade assets, an so we expect Asian investment into the region to end the year on a high.”